Hot trucking sector reined in by diesel prices, Russian invasion of Ukraine
Freight haulers still enjoy market leverage, but advantage shrank in January, FTR says.
Business conditions for trucking fleets were knocked down a few pegs in January from their historic highs by rising diesel prices, but the sector could face even greater challenges in the future as the Russian invasion of Ukraine drags on, a transportation analyst firm said today.
Trucking companies offset the effects of greater fuel costs by charging higher freight rates, but they faced a second challenge when freight volumes faltered in January, becoming a significantly weaker positive factor than they had been in December, Bloomington, Indiana-based FTR said.
As a bottom line, FTR’s Trucking Conditions Index (TCI) remains positive, but the downside risks have increased greatly, and experts now expect a record surge in fuel costs to hit trucking conditions in the near term in the wake of Russia’s military aggression.
“The war in Ukraine has introduced a high level of uncertainty into the dynamics of truck freight,” Avery Vise, FTR’s vice president of trucking, said in a release. “Sharply higher fuel costs for carriers are a given, but we do not yet know whether sharply higher gasoline prices on top of strong pre-existing consumer inflation and big swings in the stock market will lead to a drop in consumer spending.”
According to Vise, the unprecedented surge in diesel prices will likely cause many small trucking firms to go out of business, raising the question of whether those drivers will stay in the industry.
“Many will fail, but whether that outcome strengthens or weakens today’s rate leverage for carriers depends greatly on whether failing carriers’ drivers quit the industry or return to driving positions for larger carriers,” Vise said. “We generally would presume the latter, which could relieve some rate pressure, but the labor market has changed too much during the pandemic to make that a sure bet.”
By the numbers, FTR’s index for January fell to 11.46 from its December heights of 14.45. The index tracks changes in five conditions in the U.S. truck market: freight volumes, freight rates, fleet capacity, fuel price, and financing. Combined into a single score, the number represents good, optimistic conditions when positive and bad, pessimistic conditions when negative.